Gulf Keystone Petroleum Ltd. (GKP) won a U.K. lawsuit brought by a former U.S. Special Forces captain who sought a stake in the company’s Iraqi oil fields he said was worth as much as $1.6 billion.
The soldier’s company, Excalibur Ventures LLC, didn’t live up to its obligations under a contract with Gulf Keystone to develop the oil fields in Iraq’s Kurdistan region, Judge Christopher Clarke said in a ruling today in London. Shares of the company rose 17 percent.
Excalibur’s “lack of financial resources prevented it from being able to fulfill its financial obligations” and has no valid claim, Clarke said.
Gulf Keystone’s Shaikan oil fields will produce 250,000 barrels a day by 2018, according to the company. The lawsuit has held back Gulf Keystone’s stock, which had gained 7 percent this year before the verdict, compared with advances for regional competitors of more than 20 percent for Genel Energy Plc (GENL) and 50 percent for DNO International ASA. (DNO)
The ruling removes uncertainty for Gulf Keystone shares, which were suspended this morning ahead of the verdict, said Dougie Youngson, an analyst at VSA Capital Ltd. in London. Once shares resumed trading, the company rose as much as 28 percent to 240 pence before closing at 219.25 pence in London trading.
“People are reluctant to invest when there is ongoing litigation,” Youngson said. “It’s good news for the company and there will inevitably be talk of a takeover now.”
The suit was filed by Rex Wempen, who served in the U.S. Special Forces in Korea and Japan in the 1990s and is a founding member of the U.S.-Kurdistan Business Council. He said that he took the idea to Gulf Keystone and was promised a 30 percent share that he argued was worth $1.6 billion.
“It has been unfortunate that the company and its shareholders have experienced significant uncertainty and concern over the last 2 1/2 years,” Todd Kozel, Gulf Keystone’s chief executive officer, said in an e-mailed statement. He said the company is now targeting a move from the London Stock Exchange’s AIM growth market to the main list.
Wempen’s lawyer, Alex Panayides, didn’t immediately respond to an e-mail seeking comment.
Gulf Keystone’s 2009 oil discovery would never have happened if Wempen hadn’t risked trekking into Iraq during the second Gulf war to make contact with Kurdish leaders, his lawyers said in a six-month trial that ended in March.
Kozel argued Wempen hadn’t fulfilled his end of the bargain because he didn’t help with exploration costs.
Kozel said last month that the company, which has spent $780 million in Kurdistan so far, will be able to fund the development of its fields with cash flow generated once production starts at an initial rate of 40,000 barrels a day this year.
Texas Keystone, a company owned by Kozel’s family that was also a defendant in the lawsuit, said in a statement it had acted properly in all its dealings with Excalibur.
The case is: Excalibur Ventures LLC v. Texas Keystone Inc. & Ors, High Court of Justice, Queen’s Bench Division, Commercial Court, 10-1517.
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